Sprint, Softbank Deal to Close July 10, as Softbank Is Cut to Junk

The FCC approved the deals involving Softbank, Sprint and Clearwire July 5. July 8, the S&P cut Softbank's rating to junk.

Sprint's $21.6 billion transaction with Japanese carrier Softbank is expected to be completed July 10, it said in a July 8 statement and a document filed with the U.S. Securities and Exchange Commission.

On July 5, the deal received the final approval that it needed, from the Federal Communications Commission (FCC), which also gave its blessing to Sprint's complementary acquisition of Clearwire.

"Today is a good day for all Americans who use mobile broadband services," FCC Acting Chair Mignon Clyburn said in a July 5 statement. "The increased investment in Sprint's and Clearwire's networks is likely to accelerate deployment of mobile broadband services and enhance competition in the mobile marketplace, promoting consumer choice."

Commissioner Ajit Pai, in his own statement, called the deal "good for American companies, as we've now shown that regulation need not impede access to the international foreign markets and foreign capital."

He added that it also shows that the U.S. wireless market is competitive. "Were it otherwise, an investment of this magnitude in a non-dominant competitor would give new meaning to the term 'risk capital.'"

Indeed. On July 8, the Standard & Poor's index cut Softbank's credit rating to junk. Its rating was lowered to BB+, "the highest non-investment grade," Bloomberg reported.

"Sprint Nextel's exposure to intense competition in the U.S. market is unlikely to subsidize substantially in the next two to three years," S&P said in a statement. "We expect its operating performance to improve gradually, in part reflecting cost reductions and other merger benefits."

The Bloomberg report added that, as of March 31, Softbank reported $11.9 billion in short-term borrowing and $16.8 billion of long-term debt. The lower credit rating suggests the carrier is at a higher risk of defaulting and can raise borrowing costs.

Sprint, deeply in debt and needing a more vast Long Term Evolution (LTE) network with which to compete against Verizon Wireless and AT&T, announced its plans to merge with Softbank on Oct. 15, 2012. At the time, the deal included Softbank receiving a 70 percent share of Sprint in exchange for $20.1 billion—$12.1 billion of which would go to Sprint stockholders.

By the time Sprint stockholders voted on the deal June 25, it had been bumped to a total of $21.6 billion, with $16.64 billion going to Sprint stockholders, and Softbank receiving a 78 percent share of Sprint.

The vote was overwhelmingly approved, and Sprint CEO Dan Hesse said in a statement that it should improve "Sprint's long-term value and competitive position."

Satellite television provider Dish Network engaged Softbank in a bidding war for Sprint, in addition to trying to outbid Sprint for Clearwire, of which Sprint already owned 50.2 percent.

In December 2012 Sprint announced a deal with Clearwire to buy the shares it didn't already own for $2.97 per share. After competing with the late-arriving Dish, and eventually even filing a lawsuit to stop a Dish-Clearwire deal, Sprint's ultimate accepted offer to Clearwire was $5.00 per share.

Following the FCC's approval, Clearwire CEO Erik Prusch said in a July 5 statement that it was "the right transaction at the right time to best deploy Clearwire's spectrum."

Softbank CEO Masayoshi Son added that Softbank's investment in Sprint "will bring innovation and increased customer focus, which will enable us to begin creating a true competitor in a market dominated by two companies."